Ian McGowan comments on the tax implications of the 2013 UK Budget

21st March 2013

The Budget was largely predictable. With an underlying acknowledgement of the need to stimulate growth and create jobs, the Chancellor said this was a Budget for people who aspire to work hard and get on. But he also emphasised – as everyone already knew – that getting out of recession was taking longer than anyone had hoped. This meant there was little for him to give away and what he would give would need to be paid for rather than borrowed.

Mr Osborne took great delight in confirming that the personal tax allowance – the amount people can earn before they pay income tax – would be increased to £10,000 as the Coalition intended, before the end of this Parliament. In fact, it will be introduced from April 2014 – a year ahead of the next election. This, in conjunction with tax breaks on child care cost, was seen as a welcome boost to middle income working families. The Government had already disclosed this week a new system for tax relief on child care costs. From 2015, parents with under-fives can claim relief of up to £1,200 a year per child and this will be extend to children under 12 by 2020.

For business there will be a further reduction in the main rate of CT to 20%, effective from April 2015. This is not particularly surprising as it was known the Chancellor wanted to make the UK one of the lowest corporate tax regimes worldwide thus further strengthening the UK's position as a competitive place to do business. The cost of the reduction is to be paid from an increase in the bank levy. Further incentives for venture capitalists via the Seed Enterprise Investment Scheme (SEIS) should help small businesses looking for funding. And to help stimulate new jobs there is relief for employer national insurance costs in the form of an annual £2,000 employment allowance for offset against employer national insurance contributions.

Employees taking up a new type of employment contract will be able to benefit from income tax and capital gains tax exemption on employee shares. Under a scheme announced in October last year, on taking up a new type of employment contract – an employee-shareholder contract – an employee would be given shares in a company, worth between a minimum of £2,000 and a maximum of £50,000, in exchange for giving up certain employment rights. Where the shares are acquired by employee-shareholders on or after 1 September 2013, the first £2,000 worth of shares acquired will be free of income tax and national insurance contributions, and capital gains on up to £50,000 of shares will be exempt from capital gains tax.

However the Chancellor also made it clear that he is determined to root out avoidance. We were aware of the GAAR coming in later this year but Mr Osborne alluded to an anti avoidance package aimed at schemes undertaken by the wealthier sectors. This appears to be a reference to perceived avoidance through partnership structures and a proposal to"name and shame" promoters of aggressive tax schemes.